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Housing Bill - Changes in the Right To Buy Scheme

Presently council tenants are able to purchase their rented
property after 2 years of tenancy. However, this is about to
change. As of the 18th January 2005, the new Housing Bill becomes
law and the current 2 years will change to a period of 5 years.
This means, that once the proposals come into force, any new
council tenant will have to wait 5 years before having the option
of buying their property.

There is also a proposal to extend the period during which
landlords can require owners to repay some or all, of the
discount given on a property in the case of an early resale.

Currently, purchasers of a property that has been bought on
the right to buy scheme, can sell after 3 years with no
requirement to make any repayments of the discount. The proposal
suggests this should be extended to 5 years. Therefore, anyone
who sells a property bought under the right to buy scheme within
5 years of the purchase, will be requested to repay a percentage
of the given discount. Repayment figures are as follows: -

Currently
Sale within the 1st year - 100%
Sale within the 2nd year - 66%
Sale within the 3rd year - 33%

Proposal amounts
Sale within the 1st year - 100%
Sale within the 2nd year - 80%
Sale within the 3rd year - 60%
Sale within the 4th year - 40%
Sale within the 5th year - 20%

With the predicted drop in house prices in 2005 (meaning lower
property valuations) combined with the new proposals further
restrictions on council tenants wishing to purchase, now may be a
good time to consider a right to buy.

The proposed changes in the right to buy scheme include
measures to reduce the attraction of purchasing a discounted
property with the prospect of selling it to make a profit.

The initial idea of the right to buy scheme was to give
ordinary families the opportunity to own their own homes,
something they may not have been able to afford otherwise.
However there are concerns about the effects this has had on
local housing stock and a number of people profiteering from
potential windfalls in expensive property areas.

Exploitation in the Right to Buy Scheme

There have been several schemes where third party companies
encourage tenants to purchase their homes under the right to buy
scheme, by offering them cash incentives. The tenant purchases
the property at a discounted price under the right to buy scheme
and simultaneously exchanges contracts to sell the property to
the company after 3 years at which point no discount penalty will
be repayable. The tenant will lease the property to the company
and move out of the home with a cash sum. This leaves the company
free to rent out the property at the current market rental
rates.

After three years the tenant sells the property to the
company. The company will either continue to rent the property at
market rates or the property will be sold on at a substantial
profit.

The incentive for the tenant is the lump sum offered, which
can be anywhere from £5000 to £26000 but is usually a
percentage of the equity of the purchased property. This could be
attractive to tenants who do not wish to purchase their current
home or hope to purchase a property in another area as it will
give them a ready made deposit to buy another home.

The new proposals are designed to make this type of sale less
attractive and prevent profiteering as well as securing local
housing for the less well off.

The proposed changes in section 180 and 182-189 of the Housing
Act 2004 will come into effect on 18/1/2005.

For more information on a right to buy mortgage, visit
Right To
Buy website.

Nicola Bullimore has been working with people to resolve debt
problems for a number of years. For more information regarding
debt issues, please visit Debt Questions website.

Refinance rates were mixed, but one key rate cruised higher. See what that means for your refinance.

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